Lockheed Gets Down Payment for Potential $22 Billion F-35 Buy

(Bloomberg) -- The Pentagon has awarded Lockheed Martin Corp. the first installment of a potential $22 billion contract for 255 additional U.S. and allied F-35 jets, the largest batch to date.

Lockheed is receiving a $6 billion down payment toward 106 F-35s for the U.S., with the rest going to allied partners and international customers, the Defense Department said in a statement Wednesday. Deliveries are scheduled to begin in 2020.

The contract “establishes a $22.7 billion not-to-exceed contract threshold for” the 12th production lot, the Pentagon said in a statement.

“The contract action will provide critical funds to ensure F-35 production and cost reduction efforts remain on schedule as we partner with the F-35 Joint Program Office to finalize the formal contract agreement,” Bethesda, Maryland-based Lockheed said in a statement. The F-35 accounts for 27 percent of Lockheed’s sales.

In parallel, an engine contract for the 12th lot of F-35s is being negotiated with United Technologies Corp.’s Pratt & Whitney unit, according to the Defense Department.

The F-35 is the costliest U.S. weapons system. More than 320 F-35s are already operating from 15 bases worldwide, although the Pentagon and Lockheed continue to wrestle with resolving more than 900 deficiencies, including flaws in the plane’s complex software.

Late So Far

Through June, Lockheed was “late to contract requirements” in providing 209 of 308 planes to U.S. and international customers, according to the Defense Contract Management Agency.

Even as the Pentagon seeks to accelerate contracts, the F-35 program has yet to complete year-long realistic testing mandated by Congress to assess its combat effectiveness against the most stressing threats. Those tests are scheduled to start this month.

“We’re making very significant progress,” Ellen Lord, the undersecretary of defense for acquisition and sustainment, said in an interview last week. “We are picking up the pace with Lot 12, and we plan to do the same with Lot 13.”

Lord wants to prevent a repeat of the previous two F-35 program contracts, which took more than a year each to complete. Lockheed and the Pentagon finished negotiations in late September on an $11.5 billion contract for 141 F-35s, about 14 months after a down payment of $5.5 billion in July 2017.

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